Transcript of "Money Laundering Prevention"

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Your business may be an MSB (Money Services Business) if…
The business offers one or more of the following services:
■
■
■
■
■
money orders
traveler’s checks
check cashing
currency dealing or exchange
stored value
-ANDThe business:
■
Conducts more than $1,000 in money services business activity with the same person (in one
type of activity) on the same day.
-ORThe business:
■
Provides money transfer services in any amount.

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Introduction
Money is “laundered” to conceal illegal
activity, including the crimes that generate
the money itself, such as drug trafficking.
Money laundering conceals the source of
illegal proceeds so that the money can be
used without detection of its criminal source.
Financial institutions — including the
expanding network of money services
businesses (MSBs) — have been both witting
and unwitting participants in laundering
activities. Banks have been major targets in
laundering operations because they provide
a variety of services and instruments,
including cashier’s checks, traveler’s checks,
and wire transfers, which can be used to
conceal the source of illicit proceeds.
Similarly, criminals use MSBs — establishments
that provide money orders, traveler’s checks,
money transfers, check cashing, currency
exchange, and stored value services — to
hide or disguise the origin of funds derived
from illegal activity.
In order to protect themselves, and to
support national and international efforts
against financial crime, it is important that
MSBs know how money laundering schemes
can operate.
This guide provides some basic
background information on money
laundering laws, discusses actions taken in
the international arena, describes several
schemes that have involved financial
institutions, and gives examples of certain
warning signs that may help MSBs protect
themselves against money launderers and
other criminals.
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Background on Money
Laundering
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Money laundering can be a complex
process. It involves three different, and
sometimes overlapping, stages:
Placement involves physically placing
illegally obtained money into the financial
system or the retail economy. Money is
most vulnerable to detection and seizure
during placement.
Layering involves separating the illegally
obtained money from its criminal source by
layering it through a series of financial
transactions, which makes it difficult to
trace the money back to its original source.
Integration involves moving the proceeds
into a seemingly legitimate form.
Integration may include the purchase of
automobiles, businesses, real estate, etc.
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An important factor connecting the three
stages of this process is the "paper trail"
generated by financial transactions.
Criminals try to avoid leaving this “paper
trail” by avoiding reporting and
recordkeeping requirements.
One way money launderers avoid reporting
and recordkeeping requirements is by
"structuring" transactions, coercing or
bribing employees not to file proper reports
or complete required records, or by
establishing apparently legitimate "front"
businesses to open accounts or establish
preferred customer relationships.

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Background on Money
Laundering
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In recent years, more countries have
implemented laws to combat money
laundering. Financial service regulators and
enforcement agencies around the world are
working to improve communications and
share information in anti-money laundering
efforts.
In this guide, you will find a summary of
these international initiatives, as well as
efforts the government has taken to
combat money laundering in the United
States. You will also find ways you can help
combat money laundering and make your
community — and your country — a safer
place to live and work.
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Bank Secrecy Act
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The Financial Crimes Enforcement Network
(FinCEN), a bureau of the U.S. Department of
the Treasury, administers and issues
regulations pursuant to the Bank Secrecy
Act (BSA). Through certain BSA reporting
and recordkeeping requirements, paper trails
of transactions are created that law
enforcement and others can use in criminal,
tax and regulatory investigations.
The reporting and recordkeeping provisions
of the BSA apply to banks, savings and
loans, credit unions and other depository
institutions (collectively referred to as
"banks") and to other businesses defined as
financial institutions, including casinos,
brokers and dealers in securities, and money
services businesses (collectively referred to
as "non-banks").
BSA regulations require certain Money
Services Businesses (MSBs) to register with
FinCEN and prepare and maintain a list of
agents, if any. In addition, BSA regulations
require certain MSBs to report suspicious
activity to FinCEN.1
Summary of Certain
BSA Regulations
1. Registration — each business that meets
the definition of an MSB must register,
except for the following:
■
A business that is an MSB solely because
it serves as an agent of another MSB;
■
A business that is an MSB solely as an
issuer, seller, or redeemer of stored value;
■
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The U.S. Postal Service and agencies of
the U.S., of any State, or of any political
subdivision of any State.
1 See
31 CFR103.20

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■
A branch office of an MSB is not
required to file its own registration form.
2. Agent List —
■ MSBs that are required to register must
prepare and maintain a list of their
agents, if any, each January 1 for the
preceding 12-month period.
■
Upon request, MSBs must make their list
of agents available to FinCEN and any
other appropriate law enforcement or
supervisory agencies (including the IRS
in its capacity as BSA examination
authority).
3. Suspicious Activity Report (SAR) —
MSBs required to file SARs are:
■
MSBs serving as money transmitters;
■
Issuers, sellers, or redeemers of money
orders;
Issuers, sellers, or redeemers of traveler’s
checks; and
■
U.S. Postal Service.
MSBs must maintain a copy of all SARs filed
as well as the original or business record
equivalent of any supporting
documentation for a period of five years
from the date of the report. Supporting
documentation must be identified as such,
and, although it is not to be filed with the
report, supporting documentation is
deemed to have been filed with the report.
Upon request, MSBs must make all
supporting documentation available to
FinCEN and any other appropriate law
enforcement or supervisory agencies
(including the IRS in its capacity as BSA
examination authority).
Currency dealers or exchangers;
■
■
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Summary of Certain
BSA Regulations (cont.)
4. Anti-Money Laundering (AML)
Compliance Program — all MSBs, including
issuers, sellers, or redeemers of stored value,
are required to develop and implement an
AML compliance program as required by
section 352 of the USA PATRIOT Act and
implemented by regulation at 31 CFR
103.125.
5. Currency Transaction Report (CTR) —
MSBs must file CTRs on transactions in
currency involving more than $10,000, in
either cash-in or cash-out, conducted by,
through, or to the MSB on any one day by
or on behalf of the same person.
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6. Monetary Instrument “Log” — MSBs
must maintain certain information on the
sale of monetary instruments — such as
money orders or traveler’s checks — from
$3,000 to $10,000, inclusive.
7. Funds Transfer Rules — MSBs must
maintain certain information for funds
transfers, such as sending or receiving a
payment order for a money transfer, of
$3,000 or more, regardless of the method
of payment.
8. Currency Exchange Record — MSBs
must maintain certain records for each
currency exchange in excess of $1,000.
9. Record Retention — All BSA records
must be retained for a period of five years
and must be filed or stored in such a way as
to be accessible within a reasonable period
of time.
Registration Requirements
BSA regulations require certain MSBs to
have registered with FinCEN by December
31, 2001. An MSB established after that
date must register by the end of the 180-day
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it was established. A branch or an agent
of an MSB is not required to file its own
registration form. The U.S. Postal Service
and Federal or State government agencies
are not required to register. Also, MSBs
that provide only stored value services are
not required to register at this time.
MSBs are required to renew their
registration every two years by December
31 at the end of the two-calendar year
period following their initial registration. In
addition, MSBs that are required to register
are also required to prepare and maintain a
list of agents, if any, each January 1 for the
preceding 12-month period.
Filing Instructions
MSBs must register by filing Form TD F 9022.55, Registration of Money Services
Business, which is available at www.msb.gov
or by calling the IRS Forms Distribution
Center at 1-800-829-3676. Registration is
the responsibility of the owner or
controlling person of the MSB, who must
sign and file the completed registration form.
Agent Lists
An MSB that is required to register and that
has agents must prepare and maintain a list
of those agents. This list must be updated
by January 1 of each year. An MSB must
make its list of agents available to FinCEN,
as well as other appropriate law
enforcement agencies, including the IRS,
upon request. Generally, the agent list must
include:
■
Name: The name of the agent, including
any trade names or doing-business-as
names.
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Agent Lists (cont.)
■
■
Address: The address of the agent,
including street address, city, state, and
ZIP code.
Type of Services: The type of MSB
services the agent provides on behalf
of the MSB maintaining the list.
■
■
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Gross Transaction Amount: A listing of
the individual months in the 12 months
preceding the date of the agent list in
which the agent’s gross transaction
amount, for financial products or services
issued by the MSB maintaining the agent
list, exceeded $100,000.
Depository Institution: Name and
address of any depository institution at
which the agent maintains a transaction
account for any of the funds received
in or for the MSB services the agent
provides on behalf of the MSB
maintaining the list.
■
Year Became Agent: The year in which
the agent first became an agent of
the MSB.
■
Branches: The number of branches and
sub-agents the agent has, if any.
Supporting Documentation
Supporting documentation, including a
copy of the filed registration form, an
estimate of business volume, information
regarding ownership or control, and the
agent list must be retained by the MSB for
a period of five years.

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Civil and Criminal Penalties
Civil and criminal penalties can be imposed
for violations of anti-money laundering
laws and regulations. Penalties can result in
substantial fines and in prison terms. Any
MSB that fails to comply with BSA
reporting and record keeping requirements
faces possible civil penalties of up to $500
for negligent violations and the greater of
the following two amounts for willful
violations: the amount involved in the
transaction (up to $100,000) or $25,000.
Under certain circumstances, businesses can
also be held criminally liable for the acts of
their employees. The maximum criminal
penalty for violating a BSA requirement is a
fine of up to $500,000 or a term of
imprisonment of up to 10 years, or both.
following all anti-money laundering laws
and regulations.
MSBs can do a great deal to help the
federal government in its anti-money
laundering efforts. At a minimum, MSBs
should file all BSA reports accurately and in
a timely fashion, create and maintain
accurate BSA records for the requisite time
period, establish and maintain appropriate
compliance programs and follow all
Treasury Department guidance related
to the BSA.
It is therefore important that employees are
thoroughly trained on how to comply with
BSA regulations and that a system is in
place to ensure that employees are
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Establish Anti-Money
Laundering Compliance
Programs
Each MSB is required by law to have an
effective anti-money laundering (AML)
compliance program. The regulation requiring
MSBs to develop and maintain an AML
compliance program is contained in 31 CFR
103.125. Each program must be
commensurate with the risks posed by the
location, size, nature and volume of the
financial services provided by the MSB. For
example, a large money transmitter with a
high volume of business located in the Los
Angeles area is at higher risk than a small
check casher with a low volume of business
located in Boise. Therefore, the large
California money transmitter would be
expected to have a more complex AML
compliance program, commensurate with
its higher risk, than the smaller Idaho
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check casher, who is at lower risk of being
used to facilitate money laundering. An
effective program is one designed to
prevent the MSB from being used to
facilitate money laundering.
Each AML compliance program must be in
writing and must:
■
Incorporate policies, procedures and
internal controls reasonably designed to
assure compliance with the BSA;
■
Designate a compliance officer responsible
for day-to-day compliance with the BSA
and the compliance program;
■
Provide education and/or training of
appropriate personnel; and
■
Provide for independent review to monitor
and maintain an adequate program.

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Strong management commitment to the
AML compliance program promotes ongoing
compliance and helps prevent the MSB
from being used by money launderers.
FinCEN further encourages MSBs to adopt
policies and procedures that incorporate the
Basel Committee Statement of Principles on
Money Laundering, which urges:
■
■
Proper identification of all persons
conducting financial transactions with
the financial institution.
High ethical standards in financial
transactions and compliance with laws
and regulations governing financial
transactions.
Establish Customer
Relationships
Strict customer identification and verification
polices and procedures can be a financial
institution’s most effective weapon against
money laundering. Requiring appropriate
identification and verifying information in
certain cases, and being alert to unusual or
suspicious transactions can help an MSB
deter and detect money laundering schemes.
A customer identification and verification
policy tailored to the operations of a
particular business:
■
Helps detect suspicious activity in a
timely manner.
■
Cooperation with law enforcement.
■
■
Information and training for staff to
ensure that they can and do carry out
these principles.
Promotes compliance with all state and
federal laws applicable to MSBs.
■
Promotes safe and sound business
practices.
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Establish Customer
Relationships (Cont.)
■
Minimizes the risk that the MSB will be
used for illegal activities.
■
Reduces the risk of government seizure
and forfeiture of funds associated with
customer transactions (such as out
standing money orders/traveler’s checks
and outstanding money transfers) when
the customer is involved in criminal
activity.
Many MSBs are required to file SARs when
they suspect that potentially illegal activity
has occurred and when the activity has met
the relevant reporting threshold.
The types of MSBs that are currently covered
by the MSB SAR requirements are:
■
Currency dealers or exchangers,
■
Money order — issuers, sellers or
redeemers,
Traveler’s checks — issuers, sellers, or
redeemers,
■
U.S. Postal Service
Protects the reputation of the MSB.
File Suspicious Activity Reports
Suspicious Activity Reports (SARs) are
among the government’s main weapons in
the battle against money laundering and
other financial crimes. Such reports are
also a key component of an effective antimoney-laundering compliance program.
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Money transmitters,
■
■
■
MSBs that provide only check cashing or
stored value services are not required to
report suspicious activity at this time.
Refer to www.msb.gov for updates on which
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A SAR must be filed by an MSB when a
transaction is both:
■
Suspicious, and
■
$2,000 or more ($5,000 or more for
issuers reviewing clearance records).
A SAR must be filed within 30 days of
detection of the suspicious transaction by
the MSB.
MSBs that are not currently covered by the
SAR rule — check cashers, and issuers, sellers,
or redeemers of stored value — may
voluntarily file SARs. Any MSB may also
voluntarily file SARs for suspicious activity
below the reporting threshold.
It is illegal to tell any person involved in
a transaction that a SAR has been filed.
Maintaining the confidentiality of SARs
will prevent suspected individuals involved
in criminal activity from structuring their
activity in such a way as to evade detection
by law enforcement. It also will help
protect the MSB filing the report. A SAR
and/or the information contained in a SAR
must only be provided to FinCEN or an
appropriate law enforcement or supervisory
agency when requested.
Some suspicious transactions require
immediate action. If the MSB has reason
to suspect that a customer’s transactions
may be linked to terrorist activity against
the United States, the MSB should
immediately call the Financial Institutions
Hotline, toll-free at: 1-866-556-3974.
Similarly, if any other suspected violations —
such as ongoing money-laundering schemes —
require immediate attention, the MSB
should notify the appropriate law
enforcement agency. In any case, the MSB
must also file a SAR if the MSB is subject to
mandatory reporting. A BSA provision
(called a “safe harbor”) provides broad
protection from civil liability to MSBs and
their employees that file SARs or otherwise
report suspicious activity.
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What is “Suspicious Activity?”
A SAR must be filed by a covered MSB
when the MSB knows, suspects or has reason
to suspect that the transaction or pattern
of transactions is suspicious and involves
$2,000 or more. A suspicious transaction is
one or more of the following:
■
■
Is designed to evade BSA requirements,
whether through structuring or other
means.
■
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Involves funds derived from illegal
activity, or is intended or conducted in
order to hide or disguise funds or assets
derived from illegal activity.
Appears to serve no business or
apparent lawful purpose, and the MSB
can determine no reasonable
explanation for the transaction after
examining all available facts.
■
Involves use of the money services
business to facilitate criminal activity.
All MSBs should have a system or procedure
to ensure that SARs are filed when
appropriate. When an MSB employee
suspects a person is laundering money,
conducting transactions to evade BSA
requirements, or conducting a transaction
that has no apparent lawful purpose and
for which no reasonable explanation can be
determined, or involves use of the money
services business to facilitate criminal
activity, the employee should report that
activity to his/her manager or to the MSB
compliance officer. Then, if the MSB
determines that a SAR should be filed, it
must file the SAR and keep a copy of it for
five years. Any supporting documentation,
such as transaction records, must be
maintained with the copy of the filed form
and also kept for five years from the date
of filing the report.

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What are “Funds Derived from
Illegal Activity?”
The phrase “funds derived from illegal
activity” means the monetary proceeds of a
criminal act.
Example. A drug trafficker sells drugs to a
user for $500. The money received from
the drug purchaser, the $500, is proceeds of
the drug sale and is "funds derived from
illegal activity.”
What is a transaction that “Is
Designed to Evade BSA
Requirements?”
Example. A customer conducting an
$11,000 cash transaction attempts to bribe
an MSB employee not to file a CTR.
What is a Transaction that
“Serves No Business or
Apparent Lawful Purpose?”
Some transactions may be conducted in
such a way that they appear unusual or
suspicious. However, additional facts, if
known by the reporting business, might
disclose a reasonable basis for what, at first,
appears unusual or suspicious.
Example. A customer, a retired teacher,
frequently sends and receives money
transfers of more than $2,000 to and from
many different people. The MSB might at
first conclude that these transactions are
suspicious because they appear to “serve no
business or apparent lawful purpose” and
because there does not seem to be a legal
source for these funds. However, with more
information, the MSB might conclude that
a business purpose exists. For example,
the retired teacher might be regularly using
an Internet auction site to buy and sell
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antique jewelry.

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What is a transaction that
“Involves Use of the MSB to
Facilitate Criminal Activity?”
Example. An MSB suspects that a customer
is sending a money transfer in order to fund
a terrorist organization.
It is important to note that size alone, such
as a large cash transaction or money transfer,
should not be a determining factor in the
decision to file a SAR. Factors that should
contribute to that decision, however,
include the following: the size, frequency
and nature of the transactions; the MSB’s
experience with the customer and other
individuals or entities associated with the
transaction (if any); and the norm for such
transactions within the MSB’s line of
business and geographic area.
transaction is unusual and possibly
“suspicious,” it is called a “red flag.”
Examples of Some Common Red
Flags:
Customer ID or Information
■
Customer uses false ID.
■
Two/more customers use similar IDs.
■
Customer alters transaction upon
learning that he/she must show ID.
■
Customer alters spelling or order of
his/her full name.
Transactions Below Reporting or
Recordkeeping Thresholds
Customer conducts transactions just below
relevant thresholds:
■
Red Flags
When a single factor signals that a
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Currency exchanges just under $1,000.
■
Cash sales of money orders or traveler’s
checks of just under $3,000.

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Multiple Persons or Locations
■
Two or more customers working together
to break one transaction into two or
more transactions in order to evade
the BSA reporting or recordkeeping
requirement.
■
Customer uses two or more locations
or cashiers in the same day in order to
break one transaction into smaller
transactions and evade the BSA
reporting or recordkeeping requirement.
Overt Illegal Customer Conduct
■
Customer offers bribes or tips.
■
Customer admits to criminal conduct.
An MSB that correctly verifies and
documents a customer’s identity is more
likely to recognize suspicious activity that
should be reported.
What Should MSBs Look For?
Money laundering schemes can vary widely.
Federal action to curtail money laundering
activities once focused heavily on
identification and documentation of large
currency transactions. More recently,
anti-money laundering efforts have focused
on the use of money transfers, both
through bank and non-bank money transfer
systems, and other means of moving funds.
Today, as money launderers become more
sophisticated, all types of financial
transactions are facing greater scrutiny.
The following situations may indicate
money laundering or other illegal activity.
These lists are not comprehensive, but they
may help MSBs recognize ways launderers
and other criminals may try to use them to
launder money.
Attempts to Evade BSA Reporting or
Recordkeeping Requirements
Customers may try to keep their transactions
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– Purchase money orders with cash just
under $3,000 over several days.
What Should MSBs Look For?
(Cont.)
– Purchase traveler’s checks with cash
just under $3,000 over several days.
just below the reporting or recordkeeping
thresholds, such as:
■
A customer or group of customers who
attempt to hide the size of a large cash
transaction by breaking it into multiple,
smaller transactions by, for example,
conducting the smaller transactions—
– Initiate multiple money transfers to
the same receiver, each transfer in an
amount under $3,000, over several
days.
■
A customer who is reluctant to provide
information needed for a reporting or
recordkeeping requirement, whether
required by law or by company policy.
■
A customer who is reluctant to proceed
with a transaction after being informed
that a report must be filed or a record
made.
– At different times on the same day.
– With different MSB cashiers on the
same day or different days.
– At different branches of the same
MSB on the same or different days.
■
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A customer or group of customers who
conduct several similar transactions over
several days, staying just under reporting
or recordkeeping limits each time. For
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■
A customer who breaks down a single
large transaction into smaller
transactions after being informed that a
report must be filed or a record made.
■
A customer who presents different
identification each time a transaction is
conducted.
■
■
■
■
– By the same send customer, each
transfer in an amount just under
$3,000 (or other relevant threshold).
A customer who spells his/her name
differently or uses a different name each
time he/she initiates or receives a money
transfer or purchases traveler’s checks.
Any individual or group that bribes or
attempts to bribe an MSB employee not
to file any required reporting forms or
not to create a record entry required by
law or company policy.
Any individual or group that forces or
attempts to force an MSB employee not
to file any required reporting forms or
create a record required by law or
company policy.
A customer who receives payment of
multiple money transfers that appear to
have been purchased in a "structured"
manner – organized in a way to evade
reporting and recordkeeping
requirements.
– By multiple send customers initiated
at one MSB location within minutes
of each other, each transfer in an
amount just under $3,000 (or other
relevant threshold).
■
A customer cashing multiple instruments
(money orders, traveler’s checks, cashiers’
checks, foreign drafts) that appear to
have been purchased in a structured
manner (e.g. each in an amount below
$3,000).
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What Should MSBs Look For?
(Cont.)
■
An individual customer without a localaddress, who appears to reside locally
because he or she is a repeat customer.
Customers Who Provide Insufficient
and/or Suspicious Information
■
A legitimate ID that appears to have
been altered.
Individual and business customers may try
to evade providing required identification,
such as:
■
An identification document in which the
description of the individual does not
match the customer’s appearance (e.g.
different age, height, eye color, sex).
■
An expired identification document.
■
An individual customer who presents
any unusual or suspicious identification
document or information.
■
A business customer that is reluctant to
provide complete information regarding:
the type of business, the purpose of the
transaction, or any other information
requested by the MSB.
■
A prospective business customer that
refuses to provide information to qualify
for a business discount (or other
preferred customer program offered by
the MSB).
■
■
An individual customer who is unwilling
or unable to provide identification or
information.
An individual customer who provides
different identification or information
each time he or she conducts a
transaction.
– Different name or different spelling of
name.
– Different address or different spelling
or numeration in address.
– Different identification types.
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■
A customer makes cash purchases of
money orders, traveler’s checks, or other
instruments inconsistent with the
customer’s business or occupation.
■
Activity Not Consistent With the
Customer’s Business or Occupation
A business customer uses a means of
payment inconsistent with general
business practices (e.g., pays for MSB
services with traveler’s checks, money
orders, or third party checks).
■
A business customer sends or receives
money transfers to/from persons in
other countries without an apparent
business reason or gives a reason
inconsistent with the customer’s
business.
■
A business customer sends or receives
money transfers to or from persons in
other countries when the nature of the
business would not normally involve
international transfers.
Look for examples of inconsistent customer
activity, such as:
■
An individual customer conducts MSB
transactions in large amounts
inconsistent with the income generated
by the individual’s stated occupation.
■
A business customer engages in
transactions that frequently use large
bills when the nature of the customer’s
business activity does not justify such
use.
■
An individual or business customer
cashes large numbers of third party
checks.
21

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What Should MSBs Look For?
(Cont.)
■
A customer pays for MSB products/
services using money orders or traveler's
checks with unusual symbols, stamps or
written annotations (such as initials)
that appear either on the face or on the
back of the instruments.
Unusual Characteristics or Activities
Notice any unusual characteristics, such as:
■
■
A customer purchases money transfers,
money orders, traveler’s checks, etc.,
with large amounts of cash when the
MSB does not require payment in cash.
■
A customer pays for MSB products/
services using musty bills that have an
unusual or chemical-like odor.
■
An individual or business customer asks
to purchase traveler’s checks or money
orders in large bulk orders.
■
22
An individual customer purchases
products/services on a regular basis but
seems neither to reside nor work in the
MSB’s service area.
A customer pays for MSB products/
services using money orders or traveler's
checks without relevant entries on the
face of the instrument. (e.g., for money
orders — no payee, and for traveler’s
checks — no signature or
countersignature).
■
A customer purchases a number of
money transfers, money orders, or
traveler’s checks for large amounts or
just under a specified threshold without
apparent reason.
■
A customer starts frequently exchanging
small bills for large bills, or vice versa,
when the customer does not normally
use cash as a means of payment.

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■
A customer sends and receives money
transfers in equal amounts at or about
the same time.
■
A customer receives a number of small
money transfers and the same day, or
within several days, initiates one or more
send money transfers to a person in
another city or country in about the
same amount.
■
■
Changes in Transactions or Patterns
of Transactions
Be alert for changes in activity, such as:
■
– An individual money order customer
begins to make weekly purchases of
money orders in the same amounts
(when previously he or she only
purchased money orders on pay day
for rent, utilities, etc.).
A customer sends or receives frequent or
large volumes of money transfers to or
from persons located in foreign
countries, especially countries listed as
non-cooperative jurisdictions.
A customer receives money transfers and
immediately purchases monetary
instruments prepared for payment to a
third party.
Major changes in customer behavior, for
example:
– An individual customer begins to
bring in large amounts of cash (when
previously he or she cashed his or her
paycheck to purchase instruments or
transfers).
■
Sudden and inconsistent changes
in money transfer send or receive
transactions.
23

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What Should MSBs Look For?
(Cont.)
■
Rapid increase in size and frequency of
cash used by a particular customer.
Employees
Watch out for employee behavior, such as:
■
■
An employee who is reluctant to take a
vacation, which may indicate he/she has
agreed, or is being forced, to provide
services to one or more customers in
violation of law or company policy.
■
24
An MSB employee whose lifestyle cannot
be supported by his/her salary, which
may indicate receipt of tips or bribes.
An employee who is associated with
unusually large numbers of transactions
or transactions in unusually large
amounts, which may indicate he/she has
agreed, or is being forced, to provide
services to one or more customers in
violation of law or company policy.
Situations like those described in this
section often will be found, upon further
examination, to be completely legitimate.
By the same token, other situations not
mentioned here might be suspicious if they
are inconsistent with the normal activity of
a particular customer or employee. As an
MSB or MSB employee, you must make a
reasonable judgement.

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Page 25
MSBs must comply with other BSA reporting
and recordkeeping regulations. The following outlines certain of these requirements.
File Currency Transaction
Reports (CTRs)
An MSB must file a report of each currency
transaction involving cash-in or cash-out of
more than $10,000 conducted by, through,
or to the MSB on any one day by or on
behalf of the same person.2
Aggregation
Multiple transactions conducted by or on
behalf of the same person on the same day
are considered to be one transaction for
CTR purposes. In other words, the MSB
must file a CTR if it knows the customer’s
aggregate cash-in or cash-out transactions
total more than $10,000 in one day.
Cash-in and Cash-out
■
In currency,
Cash-in transactions must be added
together with cash-in transactions and
cash-out transactions must be added
together with cash-out transactions to
determine whether the CTR threshold
(greater than $10,000) has been met in any
one business day.
■
Greater than $10,000 in either cash-in
or cash-out,
CTR Filing
By, or on behalf of, the same person,
and
The CTR is IRS Form 4789, Currency
Transaction Report, and is available on
www.msb.gov or by calling the IRS Forms
Therefore, a CTR is required when a
transaction meets all of the following
conditions:
■
■
Occurs on one business day.
2 See
31CFR103.22
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Distribution Center at 1-800-829-3676.
The form must be filed within 15 days from
the date of the transaction(s).
checks , or other instruments for cash must
verify the identity of the customer and
create and maintain a record of each
purchase when the purchase involves cash
3
between $3,000 and $10,000, inclusive.
Thus, a record is required when:
The CTR requirement requires an MSB to:
■
Cash-in of $3,000-$10,000, inclusive,
and
■
Cash-in is for the purchase of money
orders, traveler’s checks, or other
monetary instruments.
File Currency Transaction
Reports (CTRs) (Cont.)
■
Verify and record customer ID,
■
Obtain transaction information,
■
Complete and file the CTR,
■
Retain a copy of the CTR for five years
from the date of filing the report.
The Monetary Instrument "Log"
requirement requires an MSB to:
■
Keep Records
Verify and record customer ID,
■
Record transaction information (for each
money order, traveler’s check, or other
instrument purchased: amount, serial
number, and date sold),
■
Retain the record for five years from the
date of the transaction.
Monetary Instrument “Log” —
for Cash Purchases of Money Orders,
Travelers Checks, Other Instruments
An MSB that sells money orders, traveler’s
26
3
See 31CFR103.29

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Funds Transfer Rules
For Senders of Money Transfers
An MSB that accepts an instruction to send
a money transfer of $3,000 or more must
verify the identity of the send customer and
create and maintain a record of the money
transfer, regardless of the method of
4
payment.
In addition, certain information must "travel,”
that is, the MSB must send on certain
information, to the next MSB or financial
institution processing the transfer.
For Receivers of Money Transfers
An MSB that accepts an instruction to pay
a money transfer of $3,000 or more must
verify the identity of the receiving customer
and create and maintain a record of the
money transfer, regardless of the method of
payment.
The requirement to record funds
transfers requires a money
transmitter to:
■
Verify customer ID,
■
Record customer information,
■
Record transaction information,
■
Send information to receiving MSB,
■
Retain the record for five years from the
date of the transaction.
Currency Exchange Record
Each currency exchanger must create and
maintain a record of each exchange of
currency in excess of $1,000.5 The
currency exchange may be either domestic
or foreign currency, or it may be both.
Thus, a currency exchange record is required
when:
■
Currency-in greater than $1,000, or
■
Currency-out greater than $1,000.
4 See
5 See
31CFR103.33(f)
CFR103.37
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Keep Records (Cont.)
Example. A customer wishes to exchange
$3,000 in Canadian dollars for its equivalent
in U.S. dollars, or a customer wishes to
exchange $1,500 in $20 bills for $1,500 in
$100 bills.
In each case, the transaction must be
recorded.
The requirement to record currency
exchanges includes the following — the
currency exchanger must:
■
■
Record transaction information,
■
28
Record customer ID and information,
Retain the record for five years from the
date of the transaction.

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Reports That
Can Help MSBs
Identify Suspicious
Transactions
Page 29
The following list of reports can be used to
look for possible money laundering activity
in MSBs.
Cash-In and Cash-Out of Large
Transaction Reports
Many MSBs prepare, or have systems that
generate, reports of cash-in and cash-out.
Often these reports include transactions
that exceed a certain threshold. Many
money transmitters, for example, have
established identification requirements at
levels below the $3,000 threshold. Such
reports can help identify customers who
may be structuring transactions to evade
BSA reporting and recordkeeping
requirements or who are engaging in other
unusual activity.
Kiting Reports
Issuers of traveler’s checks and money
orders and money transfer companies often
prepare, or have systems that generate,
reports that identify transactions that may
involve kiting. Kiting is depositing and
drawing checks between accounts at two or
more banks and thereby taking advantage
of the float — that is, the time it takes the
bank of deposit to collect from the paying
bank. Reports that indicate kiting may also
disclose other unusual patterns of activity
possibly associated with money laundering.
Money Transfer Reports
Money transfer companies prepare, or have
systems that generate, daily transaction
reports and other reports that identify
different groupings of transfer activity
processed through their systems (e.g.,
corridor reports showing all transfers from
29

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Page 30
Money Transfer Reports (Cont.)
Clearance Records/Receipts
country A to country B in a specific time
period). These reports can help identify
unusual patterns that may suggest possible
money laundering.
Issuers of money orders and traveler’s
checks prepare, or have systems that
generate, daily records of items that have
been presented for payment against the
issuer’s bank account. Many issuers have
designed programs to identify unusual
patterns of cleared instruments. Such
reports can be extremely useful in the
identification of items that may have been
used for illicit purposes.
Depending on the type of report and the
frequency, these reports can help identify
unusual customer behavior. Such reports
also may help identify unusual behavior of
businesses serving as agents of money
transfer companies.
$3,000 Instrument “Log”
Reports of cash sales of instruments between
$3,000 - $10,000, inclusive, required by BSA
regulations, can help MSBs identify possible
currency structuring patterns. Recorded
information can, for example, help identify
customers who may be structuring
transactions to evade the BSA reporting and
recordkeeping requirements.
30
$3,000 Funds Transfer Records
These records, required by BSA regulations,
can help money transmitters identify
possible structuring patterns. Records of
$3,000 or more in money transfers
regardless of the method of payment may
help identify customers who could be
structuring transactions to evade BSA
reporting and recordkeeping requirements.

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Can Help MSBs
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Customer Activity Reports
Some MSBs use customer reward programs
to encourage repeat use by customers.
Reports generated to monitor individual
customer responses or general customer
activity can be useful in identifying unusual
transactions or patterns of transactions.
31

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Some Money
Laundering Schemes
Page 32
The following descriptions are intended to
help MSBs identify activities that criminals
use to launder money. They are also
intended to reinforce the need for strict
customer identification programs. Finally,
although these examples are of landmark
investigations that primarily involve banks,
they provide lessons to be learned by MSBs
as well.
Operation Polar Cap
Two banks reported suspicious activities
related to changes in operations by
customers. Those two reports and an analysis
of CTRs by the U.S. Customs Service helped
bring together a national investigation.
At one bank, an employee noticed that a
customer, a jewelry broker, was making
large cash deposits ($25 million over three
months) that did not seem commensurate
with his usual business. In addition to filing
32
the CTRs required for cash transactions by
this customer of more than $10,000 in a
business day, one bank also notified the IRS
Criminal Investigation Division (IRS-CID).
At the other bank, an observant employee
became suspicious when a customer, who
ran a grocery store and check cashing
service, stopped taking cash back for the
checks he deposited in the bank. This
change led the banker to notify law
enforcement authorities.
Together, these two suspicious banks
helped uncover and disrupt an operation
that had laundered about $1.2 billion over
two years. More than 127 people were
arrested, a foreign bank was indicted, and
one ton of cocaine was seized. Numerous
convictions resulted.

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Operation C-Chase
A Luxembourg-based bank, two of its
subsidiaries, nine bank officials, and 75
other individuals in several countries were
indicted for possible involvement in a
worldwide money laundering scheme.
Convictions were obtained in a significant
number of cases. The operation relied on
the launderers’ associates picking up cash
from drug activities in cities around the
United States and, either through funds
transfers or by physically transporting the
cash, depositing it into undercover accounts
in a U.S. bank.
The associates signed blank checks drawn
on the undercover accounts, and after a
cash pickup occurred, the head of the
laundering operation would enter the
amount onto one of the blank checks and
forward it to the owner of the funds or sell
it on the currency black market.
As the operation expanded, the head of the
operation developed several variants on
that process. Some funds from the
undercover accounts were wired to similar
accounts in a Central American bank to
further disguise their origin. Others were
transferred through another U.S. bank to a
foreign bank.
In both instances, the funds transferred to
the foreign bank were placed in 90-day
certificates of deposit and used as collateral
on loans made by the Central American
bank to its associates. The loan proceeds
were then deposited in undercover accounts
in the bank and forwarded through the
chain as before.
At a later date, funds wired through two
foreign banks were used to purchase
certificates of deposit at a second foreign
bank. The certificates were then used as
collateral on loans made at a third foreign
bank, the proceeds of which were wired
33

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Operation C-Chase (Cont.)
back to the undercover accounts at the U.S.
banks, and transferred from there to the
owner’s account in South America. The
organizers of this ring were careful to warn
participants that transactions should be
handled in varying combinations to avoid
developing a pattern. They used many
legitimate businesses, such as hotels and
restaurants, to originate funds transfers to
the undercover accounts. Together, the
network was able to absorb about $10
million per month in drug proceeds.
Bank of Credit and Commerce
International (BCCI)
Established in the 1970s, the Bank of Credit
and Commerce International emerged in the
1980s as one of the world’s largest privately
owned financial institutions, with
operations in over 70 countries. During the
34
years of its operations, BCCI employees were
found to have engaged in a number of
illicit activities, including money laundering.
BCCI was financially distressed in the 1970s
because of troubled shipping loans, but
through an intricate shell game, it shuttled
assets and liabilities among its subsidiaries,
giving the appearance of being a wellcapitalized financial institution.
Investigations resulted in the 1991 seizure
of BCCI’s operations by regulators in seven
countries. BCCI points out a number of
important issues for financial institutions:
financial institutions should be careful
about knowing other institutions with
which they do business. They should
carefully screen potential major owners or
shareholders, pay attention to the quality
and extent of supervision that foreign
institutions receive in their home
countries, and be aware that asset

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Page 35
forfeiture laws put institutions at risk of
having assets, including bank accounts and
outstanding instruments and money
transfers, frozen or seized.
Operation Green Ice
Law enforcement agencies in eight nations
cooperated in a sting operation which
resulted in the arrest of 167 people and the
seizure of $54 million in cash and other
assets. Operation Green Ice led to the arrest
of several high-ranking financial officers of
cocaine cartels, and ultimately their
conviction. Accounts at banks around the
world were frozen after receiving transfers
and cash deposits of laundered funds. In
the United States, bank accounts were
frozen and seized in San Diego, Los Angeles,
Chicago, Houston, Miami and New York.
The U.S. banks that received the cash
deposits in this case cooperated with agents
of the Drug Enforcement Agency and
continued to file detailed CTRs, which
provided further evidence. Intermediary
banks had less access to information and
were more at risk of unwittingly being used
as part of the money laundering chain.
This case points out the need for
institutions to be aware of such risks and to
protect themselves by noting frequent
transfers of substantial sums sent to persons
or accounts in drug source countries.
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Legislation
Over the years, Congress has passed many
laws to combat money laundering. Perhaps
the most significant of these are the Bank
Secrecy Act of 1970, the Money Laundering
Control Act of 1986, the Anti-Drug Abuse
Act of 1988, the Annunzio–Wylie Act of
1992, the Money Laundering Suppression
Act of 1994, the Money Laundering and
Financial Crimes Strategy Act of 1998 and
the USA PATRIOT Act of 2001.
The Bank Secrecy Act of 1970 (P.L. 91-508)
was designed to:
■
■
36
Prevent tax evasion and provide tools to
fight organized crime.
Create an investigative "paper trail" for
large currency transactions by
establishing reporting standards and
requirements (e.g. the Currency
Transaction Report requirement).
■
Verify the identity of customers and
keep certain basic records of customer
transactions, including cancelled checks
and debits, signature cards, and
statements of account.
■
Impose civil and criminal penalties for
noncompliance with its reporting
requirements.
■
Improve detection and investigation of
criminal, tax, and regulatory violations.
The Money Laundering Control Act of
1986 (P.L. 99-570), part of the Anti-Drug
Abuse Act of 1986, made money laundering
a federal crime. It created three new
criminal offenses for money laundering
activities by, through, or to a financial
institution. These offenses are:
■
Knowingly helping launder money
derived from criminal activity.

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Legislation
■
Knowingly (including being willfully
blind) engaging in a transaction of more
than $10,000 that involves property or
funds derived from criminal activity.
■
monetary instruments, including money
orders and traveler’s checks between
$3,000 and $10,000, inclusive.
Structuring transactions to evade BSA
reporting requirements.
■
Permits the Department of the Treasury
to require certain financial institutions
in specific geographic or "target" areas
to file additional BSA reports of
currency transactions in amounts less
than $10,000 by use of "Geographic
Targeting Orders."
■
Directs the Department of the Treasury
to negotiate bilateral international
agreements covering the recording of
large U.S. currency transactions and the
sharing of such information.
■
Increased the criminal sanction for tax
evasion when money from criminal
activity is involved.
The Anti-Drug Abuse Act of 1988 (P.L.
100-690) reinforced anti-money
laundering efforts in several ways. The Act:
■
■
Significantly increases in civil and
criminal penalties for money laundering
and other BSA violations, including
forfeiture of any property, real or
personal, involved in a transaction or
attempted transaction in violation of
laws relating to the filing of Currency
Transaction Reports, money laundering
or structuring transactions.
Requires strict identification and
recording of cash purchases of certain
37

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Legislation
The Annunzio-Wylie Anti-Money
Laundering Act of 1992 (P.L. 102-550)
strengthened penalties for financial
institutions found guilty of money
laundering. Annunzio-Wylie required the
Secretary of the Treasury to:
the financial services industry about new
regulatory developments and how
reported information is used.
Annunzio-Wylie also permitted the
Secretary of the Treasury to:
■
■
■
38
Adopt a rule requiring all financial
institutions, both banks and non-banks
(including MSBs), to maintain records of
domestic and international funds
transfers, which can be used in law
enforcement investigations.
Establish a BSA Advisory Group (BSAAG),
comprised of representatives from the
Department of the Treasury and
Department of Justice, Office of
National Drug Control Policy and other
interested persons and financial
institutions, including MSBs. The
BSAAG, established in 1994, meets twice
per year and informs representatives of
Require any financial institution, or any
financial institution employee, to report
suspicious transactions relevant to any
possible violation of law or regulation.
■
Require any financial institution to
adopt an anti- money laundering
program.
In addition, Annunzio-Wylie:
■
Makes it illegal for a financial institution,
or an employee of a financial institution,
to disclose to anyone involved in a
suspicious transaction when a Suspicious
Activity Report (SAR) has been filed.

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■
■
Protects any financial institution, and
any director, officer, employee, or agent
of a financial institution, from civil
liability for reporting suspicious activity.
Makes it a federal crime to operate an
illegal money transmitting business (i.e.
operating a money transmitting business
without a state license in a state where
such license is required under state law.)
■
The Money Laundering and Financial
Crimes Strategy Act of 1998 (P.L. 105-310)
requires:
■
The President, acting through the
Secretary of the Treasury and in
coordination with the Attorney General,
to develop a national strategy for
combating money laundering and
related financial crimes and to submit
such strategy each February 1st to
Congress.
■
The Secretary of the Treasury, upon
consultation with the Attorney General,
to designate certain areas—by
geographical area, industry, sector or
institution—as being vulnerable to money
laundering and related financial crimes.
(Certain areas were subsequently
designated as High Intensity Financial
Crime Areas (HIFCAs).
The Money Laundering Suppression Act
(MLSA) of 1994 (P.L. 103-325)
specifically addressed MSBs. The MLSA:
■
Requires each MSB to be registered by
an owner or controlling person of the
MSB.
■
Requires every MSB to maintain a list of
businesses authorized to act as agents in
connection with the financial services
offered by the MSB.
■
Makes operating an unregistered MSB a
federal crime.
Recommended that states adopt uniform
laws applicable to MSBs.
39

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The USA PATRIOT Act of 2001 (P.L. 107-56),
which is the United and Strengthening
America by Providing Appropriate Tools
Required to Intercept and Obstruct
Terrorism Act of 2001, requires:
■
■
Establishment of a confidential
communication system between
government and the financial services
industry.
■
Implementation of customer
identification procedures for new
accounts.
■
40
Establishment of anti-money laundering
compliance programs by all financial
institutions. At minimum each program
must include: policies procedures and
controls; designation of a compliance
officer; training; and an independent
audit function.
Enhanced due diligence for
correspondent and private banking
accounts maintained for non-U.S.
persons.
■
Establishment of a highly secure
network by FinCEN for electronic filing
of BSA reports.

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International Money
Laundering Efforts
Page 41
The United States is not alone in the fight
against financial crimes. Many countries
have enacted significant anti-money
laundering legislation. A number of
international organizations and regional
groups have adopted anti-money
laundering rules and regulations as well.
Basel Committee
The Basel Committee consists of
representatives of central banks and
supervisory authorities of Belgium, Canada,
France, Germany, Italy, Japan, Luxembourg,
the Netherlands, Spain, Sweden,
Switzerland, the United Kingdom and the
USA. In 1988 the Basel Committee
published a "Statement of Principles" on
money laundering, which generally
recommended obtaining proper
identification from customers and
complying with laws and regulations
governing financial transactions.
United Nations (UN)
The UN Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic
Substances (the Vienna Convention) calls
on signatories to criminalize money
laundering, to assure that bank secrecy is
not a barrier to criminal investigations,
and to promote removal of legislative
barriers to investigation, prosecution, and
international cooperation.
Financial Action Task Force (FATF)
FATF was created at the Economic Summit
of the major industrialized countries in
1989. It issued a report in which it made
40 recommendations, consistent with the
Vienna Convention, for implementing and
coordinating money laundering laws in
member countries. They also formed the
basis of money laundering rules and
regulations established by the Caribbean
Financial Action Task Force and the
Organization of America States.
41

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Financial Action Task Force (FATF)
(Cont.)
Another report FATF has issued on
non-cooperative countries and territories
identifies countries with detrimental rules
and practices that obstruct international
cooperation in the fight against money
laundering.
European Union (EU)
In 1991, the EU issued a directive on money
laundering, compatible with the original 40
FATF recommendations. It requires
mandatory reporting of suspicious
transactions and identification of beneficial
owners and customers of financial
transactions and accounts.
42

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Country Advisories
and Economic and
Trade Sanction Lists
Page 43
FinCEN Advisories
FinCEN has issued country advisories urging
enhanced scrutiny of financial transactions
with countries that had deficient antimoney laundering controls. Advisories can
be viewed at: www.fincen.gov under
Publications/Advisories.
Office of Foreign Assets Control
(OFAC) List
The U.S. Department of the Treasury’s Office
of Foreign Assets Control (OFAC) issues the
Specially Designated Nationals and Blocked
Entities List (SDN List). OFAC regulations
require businesses to identify and freeze the
assets of targeted countries, terrorists, drug
cartels and other specially designated
persons. For these lists and specific
instructions regarding what businesses may
or may not do under OFAC regulations,
refer to the OFAC website at:
www.ustreas.gov/ofac.
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Glossary
Agent
Issuer
A business that an issuer authorizes,
through written agreement or otherwise, to
sell its instruments or, in the case of funds
transmission, to sell its send and receive
transfer services.
The business ultimately responsible for
payment of money orders or traveler’s
checks as the drawer of such instruments,
or a money transmitter that has the
obligation to guarantee payment of a
money transfer.
Aggregation
Adding together multiple transactions that
an MSB knows have been conducted by or
on behalf of the same person on the same
day, for BSA reporting and recordkeeping
purposes. For example, the MSB must file a
CTR if it knows a customer’s aggregate
cash-in or cash-out transactions during one
day totals more than $10,000.
Branch
An owned location of either an issuer or
agent at which financial services are sold.
44
Money Laundering
A process by which criminals seek to disguise
the true source of their illegally obtained
funds or proceeds of crime. It involves three
different, and sometimes overlapping, stages:
Placement — Physically placing criminal
proceeds into the financial system.
Layering — Separating the proceeds of
criminal activity from their origins through
layers of financial transactions.
Integration — Moving the proceeds of crime
into a "final" form that provides an
apparently legitimate explanation for the
illegally obtained funds.

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Glossary
Money Services Business (MSB)
Money Transmitter
Any person doing business, whether or not
on a regular basis or as an organized
business concern, providing one or more of
the following services:
A person that engages as a business in the
transfer of funds through a financial
institution is a money transmitter and an
MSB, regardless of the amount of transfer
activity. Generally, the acceptance and
transmission of funds as an integral part of
a transaction other than the funds
transmission itself (for example, in
connection with a sale of securities or other
property), will not cause a person to be a
money transmitter.
money orders
traveler’s checks
check cashing
currency dealing or exchange
stored value
■
■
■
■
■
-AND-
Redeemer
Conducts more than $1,000 in money
services business activity
– with one person
– in one or more transactions (in one
type of activity)
– on any one day.
■
OR
■
Provides money transfers in any amount.
A business that accepts instruments in
exchange for currency or other instruments
for which it is not the issuer is a redeemer.
For example, a hotel that provides a
customer with $1,500 in cash in exchange
for the customer’s $1,500 money order
(issued by another MSB) is a redeemer. The
MSB definition in 31 CFR 103.11(u)(4)
extends to "redeemers" of money orders and
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Glossary
Redeemer (Cont.)
Examples of Structuring
traveler's checks only insofar as the
instruments involved are redeemed for
monetary value — that is, for currency or
monetary or other negotiable or other
instruments. The taking of the instruments
in exchange for goods or general services is
not redemption under BSA regulations.
1. One person breaks a large transaction
into two or more smaller transactions —
Structuring
A term used in reference to any conduct
engaged in to evade a reporting or
recordkeeping threshold and the
corresponding BSA reporting or
recordkeeping requirement (e.g. $1,000 for
currency exchange and $3,000 for funds
transfer records or more than $10,000 in
currency for filing CTRs). Structuring is a
federal crime.
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A customer wishes to conduct a $10,500
cash transaction on one day. However,
knowing that the threshold for filing a CTR
(more than $10,000 cash transaction) would
be met, he conducts two $5,250 cash
transactions, thereby trying to evade the
CTR reporting requirement/threshold.
2. A large transaction is broken into two
or more smaller transactions conducted
by two or more persons —
A customer wishes to send $10,000 to a
friend in London. The customer and three
others each purchase a $2,500 money
transfer to London, thereby evading the
Funds Transfer Rule recordkeeping
requirement/threshold of $3,000.